It might be the greatest stock market success story of all time: On June 29, 2010, Elon Musk's already famous and already controversial electric car company, Tesla (TSLA 5.42%), went public at $17 per share. And on Jan. 14, 2020 -- less than a decade later -- you could have sold each of those shares for over $540, for more than a 3,000% return on your initial investment.
As I write this, Tesla's volatile shares are trading at roughly $500 each. That seems pricey for a company that's still never turned an annual profit and is continually taking on debt and issuing more shares, diluting existing shareholders' value. But Musk has defied the odds so far...could he do it again? Could you turn a modest investment in Tesla today into a cool million dollars?
Let's find out.
Tesla has been a top outperformer in the stock market. But can new investors expect the same growth ahead? Image source: Getty Images.
A million-dollar investment
Ordinarily, we'd see if a $10,000 investment in Tesla could turn into $1 million over time. But for this comparison, I'm going to use Tesla's past performance as a benchmark. If you'd bought shares at their IPO price (and all-time low) of $17, and sold at their all-time high to date of $540, you'd need to have bought about $31,500 worth of IPO shares to be a millionaire today.
So let's do some quick math and see whether Tesla could replicate that performance, turning $31,500 in today's shares into $1 million down the road.
$31,500 worth of a $500/share stock is just 63 shares (as opposed to more than 1,800 shares at the IPO price). Assuming no dividends -- Tesla has never offered dividends in the past and certainly hasn't indicated plans for any in the near future -- we'd need to see about a 3,200% return on those shares. In other words, the share price -- before any potential splits -- would have to increase to around $16,000/share to make this work.
Parts of the whole
The share price are actually a measure of how the stock market and the public at large are valuing the company. Adding up the value of all outstanding shares of stock gives us the market capitalization, or market cap. Currently, Tesla has about 184 million shares of stock outstanding, giving the company a market cap of more than $90 billion.
If Tesla didn't issue any more shares -- which it almost certainly will, but let's keep it simple -- and each of its $500 shares increased in value to $16,000, Tesla's market cap would soar to just under $2.9 trillion. For comparison's sake, here are the current market caps of some other automakers and major tech companies:
| Company | Market Capitalization (as of 1/17/20) | Share Price (as of 1/17/20) |
|---|---|---|
| Apple | $1.4 trillion | $315.10 |
| Alphabet (parent to Google) | $1.0 trillion | $1,452.22* |
| Amazon | $930.5 billion | $1,876.68 |
| Toyota | $198.1 billion | $140.00** |
| Tesla | $92.2 billion | $511.75 |
| General Motors | $50.6 billion | $35.43 |
| Ford | $36.4 billion | $9.18 |
*Share price for Alphabet refers to price of Class A voting shares (NASDAQ: GOOGL). **Share price of Toyota refers to shares traded on the New York Stock Exchange (NYSE: TM). Data source: YCharts as of market close on Jan. 17, 2020.
In other words, for Tesla to be a millionaire-maker stock, its market cap would have to rise to more than double the current market cap of Apple (currently the world's highest), roughly three times the current market cap of Alphabet or Amazon, and more than 14 times the current market cap of Toyota, the world's largest automaker. In short, it would have to become the largest company in the world by far.
I crunched some numbers to see what it would take to get Tesla's annual net income to double Apple's, which would justify such a valuation. I was able to get there, but not without Tesla selling nearly as many vehicles as Ford and GM put together, at luxury prices, with profit margins that were more than double its competitors'. I'm not sure even Elon Musk has that big of a rabbit in his hat.
Up, up, and away
I'm not saying that Tesla's already-pricey stock isn't going to climb higher. I am saying that it's extremely unlikely to rise a further 3,200%, enough to turn a $30,000 investment into a million dollars in a reasonable time frame.
Tesla is a volatile and risky company led by a controversial CEO, but against all odds, it seems to be muddling its way to success. However, if you're interested in a millionaire-maker stock, you should look elsewhere for a better value.
